Like Home Depot, Lowe's benefits from housing rebound

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Published August 21, 2013

| Reuters

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Lowe's Cos Inc reported a bigger-than-expected rise in quarterly profit and sales as the housing market's recovery encouraged Americans to spend more on their homes, prompting the No. 2 home improvement chain to boost its fiscal-year outlook.

Wednesday's news, which boosted Lowe's shares by more than 4 percent, came the day after larger rival Home Depot Inc reported strong results, including its first double-digit rise since 1999 in sales at stores open at least a year.

Home improvement chains, whose sales crumbled during the housing downturn, are enjoying a comeback as rising prices for homes have led to renewed interest in renovating them. The retailers' sales to contractors are also strong, further proof that the U.S. housing recovery is well on its way.

While Wall Street expects the recovery to help both retailers, some analysts say Home Depot will continue to outperform Lowe's on the sales front for a while.

Contractors and professional customers account for 35 percent of Home Depot's sales, compared with 25 percent at Lowe's. Some analysts have said it is hard to close that gap because Home Depot had more stores than Lowe's in major metro areas, where many of the professional contractors and their businesses are based.

Lowe's recently bought several neighborhood hardware and garden stores in California from Orchard Supply Hardware Stores Corp, which Sears Holdings Corp spun off less than two years ago. The deal gave Lowe's access to Orchard's prime locations in high-density markets in California, an area where it was under-represented.

Net earnings at Lowe's rose to $941 million, or 88 cents a share, in the second quarter ended Aug. 2 from $747 million, or 64 cents a share, a year earlier. Analysts were expecting a profit of 79 cents a share, according to Thomson Reuters I/B/E/S.

Sales rose 10.3 percent to $15.71 billion, beating the analysts' average estimate of $15.06 billion. Same-store sales rose 9.6 percent, but still trailed those from Home Depot.

For the fiscal year ending Jan. 31, Lowe's said it expected total sales to rise about 5 percent, while it had previously called for a 4 percent increase. It raised its earnings-per-share forecast to about $2.10 from $2.05.

Shares of Lowe's were up 4.4 percent at $46 in trading before the market opened.